The binky remains hidden

"The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook."

With that sentence, the FOMC gave a nod to the goings on in the world economy and in markets, and gave themselves a perfect ex post rationale for whatever decision they arrive at on the 16th of March.  To be sure, the language describing the US economy was softer, though it would hardly be credible if it weren't.

Given the length of the statement, however, the failure to acknowledge the committee's current assessment of the balance of risks was telling; as for the end of the sentence quoted above, it certainly sounds like the FOMC is delegating responsibility to the marketplace.  One might credibly question the wisdom of such a decision; the market's propensity to throw its toys out of the pram when the Fed thought about removing its binky from 2010-2013 was one of the reasons policy was as (over-) accommodative as it was for so long, allowing capital to be mis-allocated and stupid decisions to be made.

Evidently, however, equity markets were sad that the FOMC didn't explicitly acknowledge that global volatility might restrain growth and dampen inflation.   In a way, they have a point; the best available evidence is that the follow-through from the August-October circus was in fact weaker Q4 growth and lower inflation in many parts of the world.  The irony, of course, is that the FOMC did explicitly forecast that outcome in September:

"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the medium term."

So perhaps it was the Fed's failure to immediately re-introduce the monetary binky that sent equities lower; well, either that, or the worry that higher oil prices might squeeze an already badly-stretched consumer.  (Yes, that is a joke.)  In a way, it was refreshing to see the iron-clad correlation between oil and the equity market sunder; that's what disappointing earnings from a couple of big boys amd the aforementioned toy throwing will do for ya.  (Incidentally, Samsung also reported weak earnings last night, so it appears that the sales weakness extends to all shiny toys, not just Apple's.)

That oil managed to rally in the face of another appalling set of inventory numbers was telling; indeed, just looking at the chart from the point when the DOE data was released (see arrow below), you might have thought there was a tasty draw rather than another big build.  While some of the recent resilience has clearly been a function of rumoured OPEC cuts, the price action is nonetheless impressive.  If it does pop another few bucks or so, that will surely have at least some positive impact upon high yield, and thus upon risk assets generally.

As for fixed income, front ends closed flat on the day but the intraday price action told a very different story indeed.   It was curious to see yields grind higher even with US equities slightly in the red; at one point, the FFF7 contract that Macro Man suggested selling yesterday was 5 ticks to the good.  The cascade lower in Spooz put paid to that, but still, in the grand scheme of things a flat change on a day when the stock market drops more than a percent has got to be considered a result.

As for Spooz, Macro Man was shocked, SHOCKED to see that his flippant prediction of a 25 bp rally proved to be somewhat inaccurate.  So much for the omnipotence of the central banks in lifting asset prices.   However, as a public service for those looking for buyable dips when "the central banks are in", here is a chart of the cumulative hourly return of SPX futures over the last month.

Finally, given the newsflow from the Antipoides over the last couple of days, it's worth catching up on AUD/NZD.  On Tuesday evening NY time, the Australian Bureau of Statistics released into the wild a species endangered outside of a few exotic locales: higher than expected CPI .  Twenty-four hours later, the RBNZ gave the Fed a bit of a lesson in plain talking when it comes to policy bias:

"some further policy easing may be required"

As a result, rate differentials have moved in favour of the AUD, and it's now a couple of percent higher than where Macro Man highlighted it last month.   He still likes it for a move up to 1.12 or so, then re-assess.

In the meantime, it looks like the choppy seas aboard the S.S. Market will continue for a while longer.  Strap in and enjoy the ride!